Important tips before doing a credit card balance transfer
Monday, December 1st, 2008It definitely sounds to be a good deal when we get the option to transfer our credit card debt into some other account at a lower interest rate. You must make sure that you have understood the terms and conditions of the company allowing the balance transfer and that they are following the terms mentioned in the contract. Many people don’t realize the fact that when the lender is making such an unbelievable offer, he is not going to offer you that option by facing a loss at his end. He is into business and wants to make a profit from every customer who got into his program. If you have not read and understood the terms and conditions, he is going to make a lot of money from you, especially when you were already in overwhelming debts.
Transferring balance from a high interest rate credit card account to a low or no interest rate account can obviously save large amount of your money. Just make sure that you keep the following points into consideration.
Be aware of the balance transfer fees: there is always a fee when you are opting for the balance transfer. It might be a flat rate but the major chunk is made from the percentage of the total amount transferred. It can be something like 3% but if you are doing a balance transfer in thousands, you will end up paying a few hundreds just in fees. Always do your calculations and figure out the total costs involved. If the balance transfer fee ends up being more than what you would have paid in interests alone, the balance transfer option does not work in your case.
Other interest rates: when you go for a balance transfer option, it means that you will be getting a new credit card and you will be able to make purchases by that card. Many people get this new card and assume that that card is also offered at a lower or no interest rate. You are getting low or no interest rate on the balance transferred. It has nothing to do with the purchases you make on the new card. If you do not make the full payments on the new card, you will be charged very high interests and fees like it was charged on the other card for which you had to do the balance transfer. If you want to stick to the balance transfer option only, then go for it. Don’t build in additional debts on the new card.
Payment allocation: when you have gone for the balance transfer option, just make sure that you are regular in your monthly payments. If you are making new purchases, make sure that you pay it in full separately. Many people assume that they will make the monthly payment as it is offered in the balance transfer scheme and keep on making new purchases on the new card. Your monthly payments are going towards the balance transferred and the new purchases that you are doing on the new card is left unpaid. Hence it is adding up with high interests and fees.
Term of the balance transfer interest rate: make sure that you are aware of the low interest rate when you got the balance transferred. It must be for a definite period of time. If you are able to pay back within the offer period, you would save substantial amount of money. The moment your repayments stretch after the expiry of the limited offer, the balance remaining afterwards is likely to be whacked with a much higher interest rate. Maybe what you have been paying in the previous card.
Make sure that you have read the fine print thoroughly before opting for balance transfer. Don’t miss your monthly payments or make payments late. If you do, you might find that your zero percent interest rate is disappeared forever because there might be a term in the contract which says that the zero percent is applicable only if paid according to the conditions aforementioned.